ECB: Draghi refrained from talking down the euro - Rabobank

Analysts at Rabobank explain that even though Draghi was happy to push back expectations of the first rate hike, he refrained from talking down the euro.

Key Quotes

“Instead, he just stated the obvious that the Governing Council isn’t too keen about increased FX volatility as it is seen as a source of uncertainty. This somewhat passive reference to FX volatility was already in the introductory statement in September 2017 and failed to impress the markets. A statement about the level of the exchange rate, and not its volatility, would have been much more effective if the Governing Council actually had the intention of talking the currency down.” 

“We don’t think they had. President Draghi clearly distinguished between an endogenously produced currency appreciation through a stronger economy – which you can hardly see as unwarranted – and exogenously produced appreciation by monetary policy elsewhere or comments from others. This actually is seen as an unwarranted tightening of financial conditions. Taking the moral high ground, he explicitly reminded “someone else” (i.e. U.S. Treasury Secretary Mnuchin) of the international pledges to avoid competitive devaluations. Even though this may fall on deaf ears, it is a clear signal that the ECB doesn’t want to be dragged into a currency war. However, judging by today’s market reaction we would not be surprised at all to see some ECB sources coming out in the next few days with stronger language to limit the exchange rate’s upward potential.”